Option One Mortgage Corp.

I. Project Information
Option One Mortgage Corp.

Mortgage pre-qualification system and automated underwriting system

Brief explanation of the goals of the project
Option One (OOMC), a subsidiary of H&R Block Inc., is in the business of making, servicing and selling non-prime loans. In its continuing quest to make its loan qualification and underwriting processes more efficient and ultimately improve customer service, Option One looked to develop an automated solution that would help enable faster turnaround times on loan qualifications and loan approvals, increase decision-making flexibility, and improve its ability to manage risk and regulatory compliance. More specifically, OOMC wanted to provide customers with an easy, automated way to do business as well as an internal efficiency tool to help provide Account Executives (AEs) and internal staff with more time to nurture current and develop new customer relationships, reduce the time from pre-qualification request to preliminary approval, respond more quickly to pre-qualification requests and drive towards automated underwriting and e-submission systems to eventually support even higher financial returns.

Brief description of the business risks involved
The mortgage lending business is intensely competitive and it has become a necessity to bring automation and efficiencies to the loan pre-qualification and underwriting processes. Option One had to make progress on both fronts or risk potential business deterioration and/or lower margins.

Brief description of how the system helps users
Option One found its solution in a Business Rule Management System (BRMS) from ILOG. Option One selected a key offering in ILOG’s BRMS product line, ILOG JRules, as the foundation for its automated mortgage pre-qualification system and underwriting system. Using ILOG JRules, Option One has upgraded its pre-qualification system, accelerating loan application processing and time to market for new loan products. ILOG JRules was used to enable faster turnaround times on loan qualifications and loan approvals, increase decision making flexibility, and improve risk management for regulatory compliance. ILOG's JRules provides a centralized business rule repository that enables rapid changes and has the flexibility to delegate rule changes within IT or to certified business users outside of IT.

II. Organizational Objectives
What short- and long-term benefits did the organization achieve from the project? Did the solution meet the projected goals for saving time and money? How were benefits measured? Was the system mission critical to the organization?
Option One’s BRMS-based solution provides the following benefits in terms of usability, reliability, performance, and sustainability:

  • Usability metrics
  • Rules are maintained by Option One’s in-house team with some assistance from ILOG
  • The system can be easily audited
  • Reliability – the decision system returns identical results every time it is presented an identical fact pattern and passed all QA procedures with excellent results
  • Performance – the system provides sub-second response regardless of the number of rules or rule flows
  • Sustainability
  • The internal team implements frequent rule changes on a regular basis with short turnaround times, even during normal business hours. More complex changes to the underlying model are scheduled and QA’d like other system changes.
  • The decision system is easily extensible by IT when necessary to adapt to a changed business object model

In addition, Option One has already seen significant benefits. These include:

  • Account executives have become more efficient. Some have reported cutting the time spent doing loan pre-qualifications by 50 percent. This gives them more time to build customer relationships and less time managing transactions.
  • Option One’s partner mortgage broker now have 24-hour access to on-line PreQualifications and will soon have the ability to electronically submit their loans for approval.

Describe the business purpose of the new system.
Option One selected ILOG JRules as a key element of its “high-tech, high-touch” customer service strategy, in which the company uses technology as a part of its strategy to deliver consistently excellent service to customers. The company also implemented ILOG JRules as part of its next generation Automated Underwriting Decision System (AUDS) to ensure that mortgage brokers receive rapid responses and reliable answers that they use with confidence for the benefit of their customers. The pre-qualification and underwriting systems represent strategic investments for Option One. These are powerful systems that can quickly respond to the dynamic conditions of the mortgage industry.

Describe the features of the new system.
The BRMS based solution:

  • provides Option One the means to effectively manage automated business rules
  • ensures rule re-use across multiple business processes and applications
  • Pre-Qualification
  • Branch Underwriting
  • Bulk Acquisitions
  • e-Submissions
  • Pricing
  • is extensible by IT when necessary to adapt to a changed business object model

Explain the functions of the new system.
Using ILOG JRules, Option One has significantly improved its method to pre-qualify potential borrowers, accelerating loan application processing and time to market for new loan products while reducing the amount of time account executives spend on pre-qualification. The new system helps Option One’s partner mortgage brokers determine the appropriate loan product through a secure web site and quickly receive their client’s pre-qualification approval. Brokers get accurate, 24-hour access to underwriting guidelines and pricing, freeing up the account executives to spend more time building customer relationships and less time managing transactions. Option One next implemented ILOG JRules as part of its next generation Automated Underwriting Decision System (AUDS). Option One used ILOG JRules to create a full-scale underwriting system that automates the validation of data, eligibility and pricing – previously time-intensive manual processes. Option One‘s automated underwriting system will ensure that mortgage brokers receive rapid responses and reliable answers that they use with confidence for the benefit of their customers. Option One is using the results internally to streamline the loan origination workflow process.

Who were the internal sponsors of the project? Which officials or groups were opposed to developing the application? Why?
The Loan Origination Business Units, IT and Supporting Organizations across Option One – jointly owned the responsibility for this project. There was no opposition in the development of the application.

Were users of the system involved in the project during the planning and development phases? If so, how?
Yes, a select group of business users and support team members were involved in developing the rule requirements.

What were the greatest challenges in completing this project? How were they overcome?
It was a fundamental shift in the business process, so there were many challenges ranging from defining clear requirements, to redefining human processes into computer rules, to dealing with integration issues, to ensuring thorough QA, to getting adoption of the finished product. The key was to involve the right people, form a dedicated team, engage vendor support, and ensure that the finished product would convince even the most skeptical users.

Were the goals changed as the project progressed? If so, what were the changes and why were they made?
The end objectives were well-defined from the start. Some of the tactical elements changed a bit along the way and the complexity of some elements were bigger than hoped, but overall the scope remained fairly stable.

III. Category
Please indicate the Innovator Award category as listed below. (Categories reflect the editorial organization of Application Development Trends. Many projects can reasonably be fit into multiple categories. Try to fit your project into the category that best reflects the tools and technologies used. Don’t worry about whether you picked the right category; we will review all submissions carefully and will make changes where appropriate.

E-business Application Development
Emphasizes efforts to develop a corporate application architecture that incorporates legacy systems, client/server systems and the Internet. The judges will evaluate how the finished application affects business processes, as well as the tools and technologies employed. This category also emphasizes the use of multi-tier development tools for development of enterprise-wide applications that can include Web-based and wireless clients. Examples include RAD tools, data modelers, visual 4GLs, Java tools, Internet tools, wireless development tools and development frameworks.

IV. Methodology/Process
Describe how productivity tools or techniques were used in the project.
Option One has a thorough Project Management methodology which helps to ensure optimal productivity.

Were testing tools used during development? If so, when were they used? Was the testing cost-effective?
The team used a combination of custom and purchased automated testing tools. By maintaining close and constant communication and collaboration between the rule writers and the quality assurance team, the team was able to put a testing process in place to manage change requests, create test plans, and ensure the product was thoroughly testing before roll out. The testing function is very cost effective, leveraging both automation and global sourcing.

Was a formal or informal software development life-cycle methodology employed? If yes, please describe it.
Option One has a thorough Project Management methodology that includes a proprietary SDLC component called COMPASS. It was employed to ensure that the project was managed effectively.

What formal or informal project management methodologies and/or tools were used to manage the project? If used, please describe how.
Option One’s Project Management framework provides proprietary tools that can custom tailored to the size, scope and type of each project.

Were software quality metrics used? If so, what were they, and did using them significantly help the project?
Software quality metrics were not used.

V. Technology
What were the major technical challenges that had to be overcome to complete the project successfully? How did the team respond to those challenges?
The Option One employees were new to rules programming technology and had get up to speed on the ILOG software quickly and get to the same level of understanding as the ILOG employees working with them. Mentoring programs were put into place that enabled ILOG employees to work closely with Option One employees to provide consulting and guidance on how to code rules.

What software tools, including databases, operating systems and all development tools, were selected for the project? Why were they selected over competing tools? What process was used to select development tools and software platforms?

  • Deployment
    • Implementation language is Java 1.4.2 (Portability)
    • BRMS platform is ILOG JRules 4.6.2 (Maintenance, Scalability, Traceability, Portability across OSs)
    • Server standard is J2EE 1.3 (Portability across Java application servers)
    • Application Server platform is BEA WebLogic 8.1 (Scalability, Portability across OSs, Interoperabilty, Availability, Maintenance with Web Service generation tool)
    • Logging tool is Jakarta Commons Logging 1.0.3 with choice of Java 1.4 implementation. (Portability across logging implementations, Traceability)
    • Translation tool is Apache Xalan. XSLTC is available if needed for performance improvement. (Maintenance with use of XSLT stylesheets for XML transformation. This provides a layer of insulation from external format changes and increases the stability of the object model used to support business rule definition.)
    • External interface is through Web Services. Will define WSDL and assume UDDI is unnecessary. Will follow WS-I standards where possible. (Portability across application servers, OS and implementation language, Interoperability).
    • External interface to persistent stores is via a persistent queue supplying a JMS interface. (Portability across data stores and message queue implementations, Scalability)
  • Development
    • Build tool is Ant 1.6.1 (Maintenance, Portability across Java IDEs)
    • Unit test tool is JUnit 3.8.1 (Maintenance, Portability across Java IDEs)
    • EJB support tool is XDoclet 1.2, if needed. (Maintenance with automatic EJB code generation, Portable across Java IDEs)

The tools and platforms used for this project, already existed due older systems at Option One. The new system was integrated into the already existing environment.
Describe the overall system architecture. Were elements of the technical infrastructure put in place to support the new system? Please describe.
The following system architecture shows where the rule engine is used in the pre-qualification process. Image not available.

What characteristics of the tools and technologies used were most important in achieving the business purposes of the system?

VI. Project Team
a. What was the size of the development team?
The number of people involved in the project ranged between 50-100 from business areas, IT, etc. The specific breakdown is complex.

Describe the software development experience of the team members.

How many person-months/days did the project take, and over what calendar time frame? Was a formal schedule created at the start of the project? Did the project stay on schedule?
There were low-level activities going on for about three years, then when the project got into full swing it took roughly two years to develop Pre-Qualification, Automated Credit Scrubbing, Debt Management, Pricing, Web Portals and the Underwriting System.

Did management and the user community consider the project a success?
It is a success from many perspectives. PreQual is being used heavily by Option One’s AEs and customers. The new pricing engine has been adopted throughout the company and has been very well received. Automated Underwriting has impressed even the most ardent skeptics and will be rolled out aggressively.

If you had to do the project over again, would you do anything differently? If yes, please explain why.
If we were to start the project today, more consideration would have to be given to “buy versus build” because there are more solutions available in the marketplace. But automated rules engines have become a significant part of our automation strategy and we are better off having made it a core competency. Looking back, the only change might have been to accelerate the project and get it going earlier and more aggressively, particularly because the prequalification project was easier than the later components. But it was a starting point for a more complex and complete automated underwriting system project. As such, it was both a prototype for automated underwriting project but also a deployed prequalification application. The project offered a great opportunity for the participants to learn ILOG JRules on a smaller scale, and get ready for the larger automated underwriting project. The approach was deliberate -- start with a simple, but deployed application before moving on to a larger, more complex one.